North by Northwest
Veteran
Northwest Air rises as sector softens
By August Cole, MarketWatch
Last Update: 10:27 AM ET May 12, 2005
SAN FRANCISCO (MarketWatch) -- In an otherwise weak session for airline stocks, shares of Northwest Airlines rose more than 2% in Thursday morning trading after J.P. Morgan swapped the carrier with downgraded Continental Airlines on its focus list.
Northwest (NWAC: news, chart, profile) stock rose 2.7% to $4.53 after J.P. Morgan airline analyst Jamie Baker wrote that "the market's confidence in Continental appears to significantly exceed that for Northwest - ours does not."
Accordingly, J.P. Morgan dropped its rating on Continental to neutral from overweight. And Northwest, now with a $10 share target, replaced Continental on the analyst's focus list. The bank's airline analyst, Jamie Baker, wrote in a research note that he expects Northwest, now with a $10 one-year price target, to be back in the black next year while Continental is expected to lose $1.60 a share. He had previously expected Northwest to lose $5.35 a share and Continental to earn $1.50.
Shares of both companies have taken different paths so far this year.
Continental stock is down 10% so far in 2005 and has slipped 4% in the past 30 days. But it has rallied 40% from its January low, Baker pointed out. On Jan 24, the stock hit $8.50 a share.
Meanwhile, Northwest is down 60% and is off 36% during the past 30 days. Its lowest point this year came on Wednesday, at $4.20
In that disparity is opportunity, Baker noted.
"In our minds, the only significant difference is that Continental appears to have already been waved through by the market, Northwest seemingly has not," Baker wrote. "We believe an opportunity therefore exists."
Baker pointed out that Northwest, which he expects can earn $1 a share in 2006, is counting on cutting labor costs this year. It is a contentious time for negotiations in the industry.
Northwest's mechanics could be a tough opponent at the bargaining table. The pilots should be another matter. "While we're not suggesting Northwest breezes through its pilot negotiations, we do believe the pilots will be the last and least contentious group to afford sought-after savings, after management," Baker wrote.
United Airlines has been able to offload retirement obligations on to the government's pension agency, a move Baker says will not be lost on the mechanics union as it plays hardball with management.
By the end of the year, Northwest's liquidity is expected to be stronger, according to Baker.
On Thursday, Northwest Airlines (NWAC: news) stock rose 0.7% to $4.45 while Continental Airlines (CAL: news) lost 1.2% to $12.10.
(I see the rank and file of NWA employees meeting the challenge of the times head on.)
By August Cole, MarketWatch
Last Update: 10:27 AM ET May 12, 2005
SAN FRANCISCO (MarketWatch) -- In an otherwise weak session for airline stocks, shares of Northwest Airlines rose more than 2% in Thursday morning trading after J.P. Morgan swapped the carrier with downgraded Continental Airlines on its focus list.
Northwest (NWAC: news, chart, profile) stock rose 2.7% to $4.53 after J.P. Morgan airline analyst Jamie Baker wrote that "the market's confidence in Continental appears to significantly exceed that for Northwest - ours does not."
Accordingly, J.P. Morgan dropped its rating on Continental to neutral from overweight. And Northwest, now with a $10 share target, replaced Continental on the analyst's focus list. The bank's airline analyst, Jamie Baker, wrote in a research note that he expects Northwest, now with a $10 one-year price target, to be back in the black next year while Continental is expected to lose $1.60 a share. He had previously expected Northwest to lose $5.35 a share and Continental to earn $1.50.
Shares of both companies have taken different paths so far this year.
Continental stock is down 10% so far in 2005 and has slipped 4% in the past 30 days. But it has rallied 40% from its January low, Baker pointed out. On Jan 24, the stock hit $8.50 a share.
Meanwhile, Northwest is down 60% and is off 36% during the past 30 days. Its lowest point this year came on Wednesday, at $4.20
In that disparity is opportunity, Baker noted.
"In our minds, the only significant difference is that Continental appears to have already been waved through by the market, Northwest seemingly has not," Baker wrote. "We believe an opportunity therefore exists."
Baker pointed out that Northwest, which he expects can earn $1 a share in 2006, is counting on cutting labor costs this year. It is a contentious time for negotiations in the industry.
Northwest's mechanics could be a tough opponent at the bargaining table. The pilots should be another matter. "While we're not suggesting Northwest breezes through its pilot negotiations, we do believe the pilots will be the last and least contentious group to afford sought-after savings, after management," Baker wrote.
United Airlines has been able to offload retirement obligations on to the government's pension agency, a move Baker says will not be lost on the mechanics union as it plays hardball with management.
By the end of the year, Northwest's liquidity is expected to be stronger, according to Baker.
On Thursday, Northwest Airlines (NWAC: news) stock rose 0.7% to $4.45 while Continental Airlines (CAL: news) lost 1.2% to $12.10.
(I see the rank and file of NWA employees meeting the challenge of the times head on.)
